What was the specific nature of the dispute between Mibot and Mfast that led to the DIFC Court proceedings in ARB 035/2020?
The dispute originated from two construction contracts concerning the "Mruf" development in Jumeirah Village Circle, Dubai: the Gypsum Contract and the Joinery Contract. Mfast, an interior fit-out company, initially initiated civil proceedings in the Dubai Courts (the "Onshore Proceedings") seeking AED 17,338,390.74 in outstanding dues. Mibot, the developer, responded with a counterclaim for AED 8,463,413 in damages. Following an adverse judgment in the Dubai Court of First Instance, Mibot initiated proceedings in the DIFC Court, seeking declarations that the arbitration clauses within the addenda to these contracts were binding.
The DIFC claim was not merely a re-litigation of the onshore debt but a specific request for judicial confirmation of the arbitration agreements. The claimant’s initial filing sought significant monetary relief alongside these declarations:
Ordering the Defendant to pay AED 13,452,187 comprising, namely: - AED 1,361,845 for liquidated damages under the Gypsum Contract; - AED 5,264,728 for liquidated damages under the Joinery Contract; - AED 2,041,136 for contra charges under the Joinery Contract; - AED 4,784,478 for loss of gross operating profit based on an indemnity under the Joinery Contract. d.
This strategic shift to the DIFC Court aimed to establish the primacy of the arbitration agreements, which Mibot argued were the correct forum for the underlying construction disputes. Mibot v Mfast [2022] DIFC ARB 035
Which judge presided over the Mibot v Mfast proceedings in the DIFC Arbitration Division?
The matter was heard by H.E. Justice Shamlan Al Sawalehi in the Arbitration Division of the DIFC Court of First Instance. The order, which addressed both the Defendant's application to set aside the default judgment and the Claimant's application to strike out that set-aside application, was issued on 25 January 2022.
How did Mibot and Mfast frame their respective arguments regarding the waiver of arbitration agreements?
Mfast argued that Mibot had effectively waived its right to rely on the arbitration clauses by participating fully in the Onshore Proceedings. Mfast contended that because Mibot filed a defense and counterclaim in the Dubai Courts and pursued those proceedings to a judgment without invoking the arbitration agreements, the right to arbitrate had been abandoned.
Conversely, Mibot maintained that the arbitration agreements remained binding and that the DIFC Court was the appropriate forum to declare their validity. H.E. Justice Shamlan Al Sawalehi summarized the core of the defendant's position:
Mfast has not challenged the validity of the Arbitration Agreements. Its primary position is that Mibot waived its right to invoke the Arbitration Agreements when it filed a defence and counterclaim in the Onshore Proceedings and advanced these cases to conclusion without invoking the Arbitration Agreements. In my view, Mibot waiving a right to invoke the Arbitration Agreements presupposes the Arbitration Agreements being valid and therefore, without more, binding.
What was the precise legal question regarding the 'satisfaction' of the DIFC claim that the Court had to resolve?
The Court had to determine whether the DIFC Default Judgment was "wrongly entered" under the Rules of the DIFC Courts (RDC). Specifically, the issue was whether the claim for declarations regarding the binding nature of the arbitration agreements had already been "satisfied" or rendered moot by the prior Onshore Proceedings. Mfast argued that the subject matter of the dispute had been fully litigated onshore, thereby precluding the DIFC Court from granting the declarations sought. The doctrinal question was whether a declaration of validity of an arbitration agreement is a distinct cause of action that survives the litigation of the underlying merits in a non-arbitral forum, provided the validity of the arbitration agreement itself was never raised or adjudicated in that forum.
How did H.E. Justice Shamlan Al Sawalehi apply the test for setting aside a default judgment?
The Court evaluated whether the Defendant had a "real prospect of successfully defending the claim" as required under RDC Part 13. Justice Al Sawalehi reasoned that since Mfast did not challenge the actual validity of the arbitration clauses, there was no substantive defense to the claim for a declaration. The judge emphasized that the DIFC proceedings were distinct from the Onshore Proceedings because the specific issue of the arbitration agreements' binding nature had never been placed before the Dubai Courts.
The judge’s reasoning focused on the fact that the arbitration agreements were never invoked onshore, meaning the DIFC claim was not a duplication of a previously adjudicated matter:
It is Mfast’s case that the Arbitration Agreements were not so much as mentioned in the Onshore Proceedings, never mind invoked or otherwise put before the Dubai Courts. It necessarily follows, in my judgment, that the DIFC Claim, a claim for declarations that the Arbitration Agreements are binding, cannot have been satisfied before the DIFC Default Judgment was entered as such a claim had not previously been made.
Which specific statutes and RDC rules were central to the Court’s analysis in Mibot v Mfast?
The Court’s analysis was primarily governed by the Rules of the DIFC Courts (RDC), specifically Part 13, which dictates the criteria for setting aside a default judgment. The Court also examined the jurisdictional scope of the DIFC Court under the Judicial Authority Law. The Claimant’s request for declarations was grounded in the specific clauses of the contracts:
A Declaration that the DIFC-LCIA arbitration clause contained in Clause 36 of the Addendum in the First Sub-Contract Agreement dated 26th June 2016 is binding on the Claimant and Defendant. b.
Furthermore, the Court referenced the second arbitration agreement:
A Declaration that the DIFC-LCIA arbitration clause contained in Clause 12 of the Addendum in the Second Sub-Contract Agreement dated 8th February 2018 is binding on the Claimant and Defendant.
How did the Court reference the existing DIFC Default Judgment in its reasoning?
The Court utilized the text of the original default judgment to demonstrate that the declarations sought were specific and had not been addressed by any prior tribunal. Justice Al Sawalehi noted:
At [2] of the DIFC Default Judgment it was declared that “The arbitration clause contained in clause 36 of the Addendum in the First Sub-Contract Agreement dated 26 June 2016 [i.e. the Gypsum Contract] is binding on the Claimant and Defendant” and at [3] it was declared that “The arbitration clause contained in clause 12 of the Addendum in the Second Sub-Contract Agreement dated 8 February 2018 [i.e. the Joinery Contract] is binding on the Claimant and Defendant”. 22.
This reference served to confirm that the DIFC Court had granted relief that was entirely absent from the Onshore Proceedings, thereby validating the entry of the default judgment.
What was the final disposition of the applications and the Court’s order regarding costs?
The Court dismissed both the Defendant’s Set Aside Application and the Claimant’s Strike Out Application. Consequently, the Default Judgment remained in place. Regarding costs, the Court exercised its discretion to order that each party bear its own costs, departing from the Claimant's initial request for full recovery:
Ordering the Defendant to pay all costs, including the Claimant’s legal fees, court filing fees charges and expenses including expert fees; and e.
The Court also noted the Claimant's reservation of rights regarding interest:
Ordering the Defendant to pay interest on the outstandings [sic] and on all judgment sums. For the avoidance of doubt, the Claimant reserves the right to: a.
What are the wider implications of this ruling for DIFC practitioners?
This judgment serves as a critical reminder that the validity of an arbitration agreement is a standalone issue that remains justiciable in the DIFC even if the underlying merits of a contract have been litigated elsewhere. Practitioners must anticipate that a failure to raise an arbitration agreement in onshore proceedings does not automatically preclude a party from seeking a declaration of its validity in the DIFC, provided the validity itself was not the subject of the onshore dispute. The deep editorial analysis of this case is at: Mibot v Mfast [2022] DIFC ARB 035: The Limits of Waiver and the Binding Nature of Arbitration Agreements
Where can I read the full judgment in Mibot v Mfast [2022] DIFC ARB 035?
The full judgment is available on the DIFC Courts website: https://www.difccourts.ae/rules-decisions/judgments-orders/arbitration/arb-0352020-mibot-v-mfast or via the CDN: https://littdb.sfo2.cdn.digitaloceanspaces.com/litt/AE/DIFC/judgments/arbitration/DIFC_ARB-035-2020_20220125.txt
Cases referred to in this judgment:
| Case | Citation | How used |
|---|---|---|
| N/A | N/A | N/A |
Legislation referenced:
- Rules of the DIFC Courts (RDC) Part 13
- RDC r. 14.1
- RDC r. 14.2
- Judicial Authority Law (Dubai Law No. 12 of 2004)